Question
The corporate bonds of Wellcare Ltd, a cosmetics retailer, are trading 4% above the government bond rate of 8%. Loans given to retailers by Safe
The corporate bonds of Wellcare Ltd, a cosmetics retailer, are trading 4% above the government
bond rate of 8%. Loans given to retailers by Safe Bank Ltd that are defaulted on have a recovery rate of 50%.
Required:
(a) What is the probability that Wellcare Ltd will default on its loan repayment to Safe Bank Ltd? (3 marks)
(b) What is the minimum interest rate at which Safe Bank Ltd is likely to make a loan of $1,000,000.00 to Wellcare Ltd? (Round answer to the nearest percentage point). (7 marks)
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Applied Regression Analysis And Other Multivariable Methods
Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg
5th Edition
1285051084, 978-1285963754, 128596375X, 978-1285051086
